A money market savings account is a hybrid between a regular savings account and a money market fund

A money market savings account is a bank account that combines features of two different products. Like a regular savings account, your money is insured by the FDIC (Federal Deposit Insurance Corporation) up to $250,000, and you can withdraw it without penalty. Like a money market fund, the interest rate moves up and down with market conditions, and the bank may require you to keep a higher minimum balance to earn the advertised rate.

The main draw is the interest rate. Money market savings accounts typically pay more than a regular savings account because you're agreeing to keep more money in the account and accept that the rate will change. In exchange, the bank uses your deposit to buy short-term loans and other low-risk investments, and passes some of the earnings back to you.

The tradeoff is access. Most money market savings accounts limit how many times per month you can withdraw money—often to three to six withdrawals—before fees kick in. Some banks charge a flat fee per extra withdrawal; others charge a percentage of the amount withdrawn. A few have no withdrawal limit at all, though those typically pay lower rates.

Key Takeaways

  • Money market savings accounts are FDIC-insured bank accounts that pay higher interest rates than regular savings accounts in exchange for keeping a larger minimum balance.
  • The interest rate on a money market savings account changes periodically based on what the Federal Reserve does and what short-term interest rates are doing in the broader economy.
  • Most money market savings accounts limit withdrawals to three to six per month before charging a fee, so they work best for money you don't need to touch often.
  • The minimum balance required to earn the advertised rate varies widely—some banks require $2,500, others require $25,000 or more—so compare before opening.
  • If you fall below the minimum balance, the bank typically drops your interest rate to a much lower tier, sometimes as low as a regular savings account.

How the interest rate works and why it changes

The interest rate on a money market savings account is variable, meaning the bank can change it whenever it wants. Most banks adjust their rates in response to what the Federal Reserve does. When the Federal Reserve raises its benchmark interest rate, banks tend to raise the rates they pay on savings accounts. When the Federal Reserve lowers its rate, banks usually lower what they pay you.

This is different from a fixed-rate product like a certificate of deposit (CD), where the rate is locked in for a set period. With a money market savings account, you could earn 4.5% one month and 3.8% the next month. The bank will notify you before the change takes effect, usually by email or through your online account.

Because rates change, money market savings accounts are best for money you plan to keep in the account for a while—at least a few months. If you're saving for something six months away and rates drop, you'll earn less than you expected. If you need the money in two weeks, a money market savings account probably isn't the right tool, because you'll pay withdrawal fees that eat into any interest you've earned.

Minimum balance requirements and what happens if you fall short

To earn the advertised interest rate on a money market savings account, you must keep a minimum balance in the account. This minimum varies by bank and by account tier. Some banks require $2,500; others require $10,000, $25,000, or even $100,000. A few banks have no minimum at all, but they typically pay lower rates to make up for it.

If your balance drops below the minimum—even by $1—the bank will usually move you to a lower interest tier. That lower tier might pay 0.01% instead of 4.5%. You stay in the lower tier until your balance climbs back above the minimum. Some banks charge a monthly fee if you fall below the minimum; others straightforward drop your rate. Read the account agreement carefully to know which applies to your bank.

This is why a money market savings account works best if you have a lump sum you want to set aside and leave alone. If you're adding small amounts regularly or drawing down the balance gradually, you risk dipping below the minimum and losing the higher rate.

Withdrawal limits and fees

Most money market savings accounts allow you to make three to six withdrawals per month before fees explore. This limit includes transfers to other accounts, not just ATM withdrawals or checks. Once you hit the limit, the bank charges a fee for each additional withdrawal—typically $10 to $25 per transaction.

Some banks enforce this limit strictly; others waive it during hardship situations. A few banks have removed withdrawal limits entirely in recent years, though those accounts usually pay lower rates. Before opening an account, check the bank's website or call to confirm the withdrawal limit and what counts as a withdrawal.

If you think you'll need to access the money frequently, a money market savings account is not a good fit. A regular high-yield savings account with no withdrawal limit and a competitive rate might serve you better, even if the rate is slightly lower.

How a money market savings account compares to other savings products

A money market savings account sits between a regular savings account and a certificate of deposit in terms of both rate and flexibility. A regular savings account has no minimum balance, no withdrawal limits, and FDIC insurance, but pays a much lower rate—often 0.01% or less. A CD locks in a higher rate for a set term (three months to five years), but you pay a penalty if you withdraw early, and you can't access the money without that penalty.

A money market savings account offers a middle ground: a higher rate than a regular savings account, more flexibility than a CD, but with the tradeoff of a minimum balance and withdrawal limits. It's also different from a money market fund, which is an investment product that is not FDIC-insured and can lose value.

If you have $10,000 or more sitting in a regular savings account earning almost nothing, moving it to a money market savings account could earn you hundreds of dollars per year in interest. If you have less than the minimum balance required, or if you need to withdraw money frequently, a high-yield savings account is usually the better choice.

Where to find money market savings accounts and what to compare

Most traditional banks offer money market savings accounts, as do many online banks and credit unions. Online banks often have lower overhead costs and pay higher rates than brick-and-mortar banks, but they don't have physical branches. Traditional banks may pay lower rates but offer in-person service.

When comparing accounts, look at four things: the current interest rate, the minimum balance required to earn that rate, the withdrawal limit and associated fees, and whether the bank is FDIC-insured. The FDIC insurance is not optional—it's a legal requirement for all banks, so every legitimate bank account has it. Check the bank's website or call customer service to confirm the current rate, because rates change frequently and what you see online may not be what you get when you open the account.

Also ask whether the bank will waive the minimum balance during certain circumstances, such as if you're a student or a new customer. Some banks offer promotional rates for the first few months to attract new customers, then drop the rate after that period ends. Read the fine print before opening.

How to open a money market savings account

Opening a money market savings account is the same process as opening any bank account. You'll need a government-issued ID, proof of address (usually a recent utility bill or lease), and your Social Security number. Most banks let you open an account online in about 10 minutes. You'll provide your personal information, choose a username and password, and link a bank account to fund your new money market account.

Some banks require you to fund the account with at least the minimum balance before they'll set up it. Others let you open the account with $0 and add money later, but you won't earn the advertised rate until you meet the minimum. Check the bank's website to see which applies.

Once the account is open, you can deposit money by transferring it from another bank account, depositing a check through mobile deposit, or in some cases visiting a branch in person. The money usually appears in your account within one to three business days.

Frequently Asked Questions

Can I lose money in a money market savings account?

No. Money market savings accounts are FDIC-insured, so your principal is protected up to $250,000 even if the bank fails. The interest rate can go down, which means you'll earn less, but your balance will not shrink.

What happens if I need to withdraw money before the month is over?

You can withdraw money anytime without penalty. If you exceed the withdrawal limit (usually three to six per month), the bank will charge a fee per extra withdrawal, typically $10 to $25. Some banks waive the fee if you call and explain the situation.

Is a money market savings account the same as a money market fund?

No. A money market savings account is a bank account with FDIC insurance. A money market fund is an investment product sold by brokerages and mutual fund companies, and it is not insured. Money market funds can lose value, though they rarely do.

What if the interest rate drops after I open the account?

The bank can lower the rate anytime. You'll be notified before the change takes effect. If you're unhappy with the new rate, you can transfer your money to another bank's account. There's no penalty for closing a money market savings account.

Do I need a certain credit score to open a money market savings account?

No. Banks don't check your credit score for savings accounts. They may check your banking history through ChexSystems, a system that tracks bounced checks and fraud, but a good credit score is not required.